What is a CP2000 Notice?

An IRS Notice CP2000 is not an audit letter or a formal bill. Instead, it is an underreporter inquiry.

The IRS sends this notice when the income, payments, or credits reported on your tax return do not match the information reported to the IRS by third parties (like your bank, employer, or brokerage firm on Forms W-2, 1099, or 1099-R).

Step-by-Step Response Checklist

If you receive a CP2000 notice, follow these steps to review and respond:

  1. Do Not Panic: A CP2000 is a proposal, not a final tax assessment.
  2. Verify the Deadline: You typically have 30 days from the date printed on the notice to respond.
  3. Compare with Your Records: Check the “Proposed Changes” section of the notice against your tax returns and W-2 or 1099 worksheets.
  4. Locate the Discrepancy: The notice will specify exactly which forms (e.g. 1099-INT, 1099-B) the IRS thinks are missing from your return.
  5. Decide if You Agree or Disagree:
    • If you agree: Sign the Response Form and send it back. The IRS will send you a formal bill.
    • If you disagree: Do not sign the agreement form. Instead, prepare a written response explaining why the notice is incorrect and provide supporting documentation.

Common Reasons for CP2000 Errors

Notice CP2000 letters are generated by automated systems and frequently contain errors. Common issues include:

  • Cost Basis Errors: The IRS receives a 1099-B for stock sales but assumes the cost basis was $0, calculating a tax penalty on the entire sale price instead of the net profit.
  • Pension Rollovers: You rolled over a retirement account (like an IRA) to another tax-deferred account. The IRS sees a 1099-R distribution but misses the rollover deposit proof.
  • Double Reporting: The same income was reported under a different category or employer ID.